By Chisa Fujioka
TOKYO, Jan 6 (Reuters) - Prime Minister Yukio Hatoyama's image has been hurt by perceptions that Japan's ruling party No. 2 Ichiro Ozawa is deciding policies, but the master strategist's skills are thought vital ahead of a crucial mid-year election.
Ozawa's role was in the spotlight again on Wednesday after media reports that one reason elderly Finance Minister Hirohisa Fujii, expected to step down soon for health reasons, wants to quit is because he felt he had been slighted in favour Ozawa in budget wrangling late last year.
Analysts also said Ozawa could well have a hand in picking Fujii's successor.
Following are some questions and answers about Ozawa's influence and why it matters.
HOW MUCH CLOUT DOES OZAWA HAVE?
Ozawa, 67, stepped down as party leader last May over a fund-raising scandal, but still helped engineer the Democrats' victory in an August election that ended more than a half-century of almost unbroken rule by the Liberal Democratic Party (LDP).
Ozawa himself was a rising star in the LDP until 1993, when he bolted the party with dozens of other lawmakers. Using the campaigning skills he honed in the LDP, he has since worked to nurture a viable rival party to the LDP.
Last year's Democratic election win bolstered Ozawa's clout within the party because many new parliamentarians are loyal to him, although some analysts say the degree to which most lawmakers will dance to his tune is questionable.
The soft-spoken Hatoyama has also been stuck with an image as Ozawa's "puppet", which was bolstered last year when Ozawa backed him in a party leadership race to beat a rival more popular with ordinary voters.
WHAT'S NEGATIVE ABOUT OZAWA'S INFLUENCE?
Ozawa's presence has hurt Hatoyama's image, with public support for the leader now below 50 percent from initial highs above 70 percent due to a perceived lack of leadership.
While some analysts say speculation of Ozawa's influence over policy is exaggerated, Japanese media have been rife with reports that Hatoyama has been catering to Ozawa's demands on matters from personnel to the budget for next fiscal year.
Ozawa's penchant for backroom deal-making could also hurt the Democrats' popularity with voters, who have pinned hopes on the party to make policy formation more efficient and transparent.
Ozawa's clout has raised concern about a rival power centre to the cabinet, that would undermine a Democratic pledge to centralise decisions in the cabinet.
Media have portrayed Ozawa as the man behind the throne, with TV programmes repeatedly showing lobby groups ranging from labour unions to nutritionists heading into Ozawa's office for meetings.
A trip to China with a 140-strong delegation of lawmakers also stirred talk Ozawa was wielding influence over diplomacy.
WHY DO THE DEMOCRATS NEED HIM?
With Ozawa still plagued by reports of suspected political funding scandals, speculation simmers that he may have to step down as No.2 at some point.
But some analysts see Ozawa's influence as indispensable, since he helps make decisions others can't. Ozawa helped persuade Hatoyama to drop a key campaign pledge so the government could limit spending in the budget for next fiscal year and cap the expansion of Japan's huge public debt.
More importantly, the party needs Ozawa's expertise in campaigning for the upper house election this year in which it needs to win an outright majority to reduce the clout of two small coalition allies currently needed to enact laws smoothly.
The two allies have caused headaches for Hatoyama with demands for big spending to boost the economy and by insisting that a U.S. Marine base be moved off the southern island of Okinawa.
If the Democrats can win a majority in the upper house, the party could better focus on policy priorities of its own and could tackle longer-term structural reforms eagerly sought by voters and investors.
(Editing by Jeremy Laurence)